Employment and support allowance

Our 8 questions and answers on the Employment and support allowance (ESA) and Support for mortgage interest.

1. Realistically, when should someone who is receiving statutory sick pay, complete and submit their application for ESA?

Citizens Advice
 say that if you’re getting statutory sick pay, the claim can start up to 3 months before it's due to finish. This will potentially help the individual get the ESA money quicker.

2. Is ESA means tested?

There are different types of ESA and it depends upon which type of ESA the individual qualifies for:

  • Income related ESA (existing claims only)

Income related ESA is means tested.  The Department for Work and Pensions will look at the household’s income and savings and some other factors to see whether they qualify or not. Household income and savings worth £6,000 or more may affect how much they can get.

  • Contribution related ESA (existing claims only)

Savings do not affect how much is paid. Most income is not taken into account, however income from occupational or personal pensions may reduce the amount paid. Income from any of these is added together and 50% of anything over £85 a week is deducted from the amount paid.

  • New style ESA

As with the contribution related ESA, income from occupational or personal pension may reduce the amount paid: 50% of anything over £85 a week is deducted from the amount paid.

3. Are there any calculators that calculate what state benefits individual can potentially qualify for?

Yes, there are lots of good calculators, but just be aware that you do have to input quite a lot of data before you see the decision.

The following calculators are both approved by the GOV.UK website.

4. Can claiming means tested state benefits be affected by actually having a protection plan in place?  Can you explain what would happen?

The Department for Work and Pensions has now made it clear that any income individuals receive from insurance (such as income protection) which is specifically intended to cover their mortgage payments is disregarded when their means tested benefits are assessed. 

5. When an individual qualifies for ESA and is placed in the ‘Work Related Activity Group’, do they get a higher amount of benefit than the benefit they initially receive whilst being assessed?

For the 2022/23 tax year, if a claimant for ESA is in the assessment phase, they can claim up to £77.00 a week.

However, once their assessment reaches an outcome, they could be placed in the Work Related Activity Group. The Department for Work and Pensions give a definition for those in this group which is that they have decided that the disability or health condition does limit their ability to work right now, but there are things they can do to improve this.

New claimants of ESA benefit who are in the Work Related Activity Group will receive a benefit of £77.00 a week – which is the same amount of benefit they will have received whilst being assessed.  There is no additional component benefit available for new claimants.

Prior to 3 April 2017, an additional component would be paid to those in the Work Related Activity Group. The Work Related Activity Group Component is £30.60 a week (based on the 2022/23 tax year) – but this is only available for claimants who were assessed prior to 3 April 2017.

6. If an individual claimant for ESA receives the ‘Fit for Work’ assessment outcome, what can the individual do?  Can they appeal the decision?

Individuals who receive the ‘Fit for Work’ outcome have a couple of options available to them.

In the first instance, they can ask for a mandatory reconsideration. This is where the Department for Work and Pensions will take another look at the claim and the decision could be overturned. 

Data from the Department for Work and Pensions suggest that many claimants do exercise their right for a mandatory reconsideration each year.

If the claimant is still unhappy with the decision of the mandatory reconsideration, they can lodge an appeal. The appeal will be handled by an independent tribunal. 

Data from the Department of work and pensions published in December 2021 suggests that since May 2020 approximately two thirds of mandatory reconsideration decisions led to a change in award.

7. If a claimant for Support for Mortgage Interest has a higher interest rate on their mortgage, to the interest rate used on this state benefit, what would happen?

In simple terms, there would be a shortfall and the claimant would have to make up the difference to satisfy the mortgage lender.

The rate of interest currently used to calculate Support for Mortgage Interest benefit is 2.09% at the time of writing in February 2022. 

This is interest rate used to calculate payments for interest only (not capital). This rate will fluctuate from time to time and is administered by the Department for Work and Pensions.

8. If a claimant receives Support for Mortgage Interest for a period of time, would anything need to be paid back?

Yes. All of the benefit, plus interest would need to be paid back because, Support for mortgage interest is a loan which is secured against the claimants property.

Repayment of the Support for Mortgage Interest Loan can be made at any time or when the claimant sells or transfers ownership of the property (provided there is enough equity in the property).

The rate of interest used on the ‘loan’ taken by an individual is currently 0.8% at the time of writing, but is subject to change from time to time. 

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

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